-Tom
-Yes Godfather
-You know I've been wondering.......how can people be so stupid?
-You're right godfather...I'm as surprised as you are.
-Tom...I've made so much money from the stupidity of these people, that sometimes I feel guilty, I feel like I didn't deserve it.
-No godfather....these people didn't deserve the money.....it was rightfully your's from the very beginning...I know you'll put it to a much better use than they were going to......Anyways... how did this all start?
See Tom, sometime back ....and not so long back...companies used to raise funds, just like they do nowadays. So a young company would normally be setup with the founders own capital...subsequently as and when the need for more funds arose the company would either take out a bank loan, or borrow from private lenders. With time as the company grew, it would establish a credit rating, it would get cheaper funds from banks, it may even raise debt from the public. Over time when the company was significantly large and most importantly profitable, it would tap the equity markets. See, in those times, people would invest in companies that would eventually pay them regular dividends for their investment.
Then came the smart guys and invented a whole range of financial products, some call them "Investment Bankers", I prefer to call them "Dumb Asses". The problem with these guys is that they make everything look good. Another breed of financiers emerged over time, the Venture Capitalists. They did some really good work in funding start-up companies, which basically allowed these small companies to get financing at much cheaper rates than what banks would lend them.
All was going according to plan, when eventually greed set in. And you know what happened.....These VC's were no longer interested in nurturing companies, they were now in the firm grasp of a new addictive drug...."Exit Multiple".
Now since these VC's wanted to exit from their investments and make huge amounts of money, they did what most people would do, they called in the Investment Bankers. Now these investment bankers developed exorbitant "Valuations" for the companies and marketed them to the public in the form of an IPO. And the public being stupid, as mentioned, readily subscribed to the IPO.
Now markets are big levelers, and can quickly sniff out hype. No sooner had these companies gone public, the market beat them back to their true value, which was way below the IPO listing price. Well, by now the VC's were gone with their fancy "multiple", the banker were gone with their underwriting fees, leaving behind the lone investor with a piece of junk.
Mind you, all this time, Hedge Funds like us were watching this drama fold out, and we shorted these companies the day they were allowed to go short (some SEC crap apparently prevents us from doing this one day 0).
And that's how we made a lot of money.
Bottom line: "Never underestimate the predictability of human stupidity"
-Yes Godfather
-You know I've been wondering.......how can people be so stupid?-You're right godfather...I'm as surprised as you are.
-Tom...I've made so much money from the stupidity of these people, that sometimes I feel guilty, I feel like I didn't deserve it.
-No godfather....these people didn't deserve the money.....it was rightfully your's from the very beginning...I know you'll put it to a much better use than they were going to......Anyways... how did this all start?
See Tom, sometime back ....and not so long back...companies used to raise funds, just like they do nowadays. So a young company would normally be setup with the founders own capital...subsequently as and when the need for more funds arose the company would either take out a bank loan, or borrow from private lenders. With time as the company grew, it would establish a credit rating, it would get cheaper funds from banks, it may even raise debt from the public. Over time when the company was significantly large and most importantly profitable, it would tap the equity markets. See, in those times, people would invest in companies that would eventually pay them regular dividends for their investment.
Then came the smart guys and invented a whole range of financial products, some call them "Investment Bankers", I prefer to call them "Dumb Asses". The problem with these guys is that they make everything look good. Another breed of financiers emerged over time, the Venture Capitalists. They did some really good work in funding start-up companies, which basically allowed these small companies to get financing at much cheaper rates than what banks would lend them.
All was going according to plan, when eventually greed set in. And you know what happened.....These VC's were no longer interested in nurturing companies, they were now in the firm grasp of a new addictive drug...."Exit Multiple".
Now since these VC's wanted to exit from their investments and make huge amounts of money, they did what most people would do, they called in the Investment Bankers. Now these investment bankers developed exorbitant "Valuations" for the companies and marketed them to the public in the form of an IPO. And the public being stupid, as mentioned, readily subscribed to the IPO.
Now markets are big levelers, and can quickly sniff out hype. No sooner had these companies gone public, the market beat them back to their true value, which was way below the IPO listing price. Well, by now the VC's were gone with their fancy "multiple", the banker were gone with their underwriting fees, leaving behind the lone investor with a piece of junk.
Mind you, all this time, Hedge Funds like us were watching this drama fold out, and we shorted these companies the day they were allowed to go short (some SEC crap apparently prevents us from doing this one day 0).
And that's how we made a lot of money.
Bottom line: "Never underestimate the predictability of human stupidity"
